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Published on: 08/11/2022

How Can I Reduce My Taxable Retirement Income?

How can I reduce my taxable retirement income? For many high-net-worth individuals, this question remains important. Taxes can have a significant impact on your retirement income over time and, without proper planning, can leave you with less money for retirement. After all, retirement is meant to be a comfortable chapter of your life, so it’s best to be prepared. 

If your current financial advisor is not implementing early retirement tax strategies into your overall retirement plan, it may be time to seek out another advisor to handle your retirement planning in Houston. In this article, the fiduciary financial advisors from Avidian Wealth Solutions guide you through all of the ins and outs of tax planning for retirement.

How is retirement income taxed?

Where you choose to retire is an important aspect of retirement planning. Each state has a different set of tax laws and some are friendlier to retirees than others. Texas, for example, is considered a “tax-friendly” state for retirees due to the lack of income tax. This means that at the state level, there is no tax on retirement income. Therefore, your social security benefits, pension income, 401(k)s, IRAs, and other forms of retirement income will not be touched. 

If you think you may decide to retire in a state that is less tax-friendly, you may find yourself asking “how is retirement income taxable in other states?” Your tax liability will depend on a few key factors:

  • Your tax filing status 
  • Your retirement income sources
  • Your total annual income 

Your yearly tax bill will depend on your unique financial circumstances. That is why it is crucial to find a financial advisor who will not take a one-size-fits-all approach to your retirement income planning in Houston. With a retirement plan customized to your needs, you can plan ahead for potential risks, increasing your chances of a more comfortable and carefree retirement.

Retirement tax strategies for high-income earners

Contributing to tax-advantaged accounts

There are two different types of retirement accounts that you can contribute to as a part of your early retirement tax strategies: tax-deferred accounts (where contributions are made pre-tax) and tax-exempt accounts (where contributions are made post-tax). The type of account(s) you choose to contribute to can depend on what is suitable for your financial goals. 

Both options can serve as a safe place for your retirement earnings. However, the key to making the most of your tax-advantaged accounts is to max out your yearly contributions to take advantage of the tax breaks that can generate a substantial amount of wealth. Talk with your tax advisor to see if this option would be beneficial to you.

Avoiding early withdrawal by implementing an emergency fund

Retirement planning cannot always shield you from what the future holds, and in some cases, an emergency may arise where you will need to dip into your retirement savings account to cover an unexpected cost. Even when necessary, early withdrawals from accounts like a 401(k) or an IRA can result in penalties that can throw off your retirement plan. 

The best way to avoid an early withdrawal is to create your own emergency fund for unexpected financial emergencies. This will allow you to access the funds you need without touching your retirement money and can prevent harsh tax penalties. 

Utilizing tax-loss harvesting

Tax-loss harvesting is a financial strategy that, when done correctly, can aid in a reduction of your tax obligation for that year. For high-earning investors, tax-loss harvesting can result in a huge tax benefit and can be a great strategy to rebalance your portfolio. 

How does tax loss harvesting work? Tax harvesting is a strategy in which you sell an asset for lower than what you originally purchased it for to avoid a higher gain or taxable income on assets including stocks, mutual funds, and exchange-traded funds (ETFs). 

Please note that tax-loss harvesting is not beneficial for every portfolio. We highly suggest speaking to your financial advisor before attempting to implement this tactic on your own. Your advisor should be able to assess what assets are performing poorly, if any, or determine if certain investments no longer align with your current financial goals.

Hiring a fiduciary financial planner

The key to implementing retirement tax strategies for high-income earners is to work with a tax and financial advisor that will have your best interest at heart when it comes to financial planning and investment management. The best way to know that your retirement plan is tax-efficient is to work with a fiduciary financial advisor from Avidian Wealth Solutions.

Each and every client has their own unique set of needs and we tailor our financial planning services to reflect that. As fiduciaries, we are legally obligated to put your needs first and make every decision with your best interest in mind. This means that you can feel confident that you are getting financial advice that is meant to benefit you and no one else. While other advisors may use a cookie-cutter approach, we customize your retirement plan to best suit your particular financial circumstances. 

The fiduciary advisors at Avidian Wealth Solutions can provide tax-efficient retirement strategies

The answer to “How can I reduce my taxable retirement income?” is made simpler with Avidian Wealth Solutions. When it comes to tax-efficient retirement planning, our advisors are your biggest financial advocates and can seek strategies to help you enjoy more of your hard-earned wealth. As a boutique family office, we can provide a more customizable and cost-efficient approach to retirement planning by incorporating tax planning and risk management into your personalized plan.

If you’re looking for ways to reduce your taxable retirement income or need guidance on how to implement early retirement tax strategies, schedule a consultation with an advisor from Avidian today. It’s never too late to get on the right track to a better retirement.

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